Spatially Heterogeneous Effects of a Public Works Program

Abstract

Most research on labor market effects of the Mahatma Gandhi National Rural Employment Guarantee Scheme focuses on outcomes at the district level. This paper shows that such a focus masks substantial spatial heterogeneity: treated villages located near untreated areas see smaller increases in casual wages than treated villages located farther from untreated areas. I argue that worker mobility, rather than spatial differences in implementation or program leakages, drives this spatial heterogeneity. I also present evidence that the effects of the program on private-sector employment display similar intra-district heterogeneity. Finally, by exploiting the difference in wage changes over space, I show that a large portion of consumption increases are driven by wage increases, not program employment. Overall, these results suggest that a district-level focus underestimates the true effect of the program on wages and also support the argument that increasing rural wages is an effective poverty-fighting tool in developing countries.

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